Summary: Cash rate expectations path noticeably flatter; cash rate now expected to average 0.88% in December 2022; flurry of new reports plus new forecasts from the RBA; two changes to ADI cash rates in survey.
Since March 2020, the RBA has not enforced its cash rate target by draining liquidity from the banking system via changes in the total of ESA balances. As a result, the actual cash rate, currently at 0.03%, has been noticeably below the target rate, even after the RBA reduced this target to 0.10%. As such, contract prices only reflect expectations of the average actual cash rate in a given month and not some estimate of the likelihood of the RBA changing its target.
Expectations moved to reflect a noticeably flatter path for the actual cash rate through the remainder of 2021 and into 2022 in comparison to its path at the end of the previous week. At the end of the week, contracts implied the cash rate would rise slowly but steadily from the current rate of 0.030% to 0.07% by March 2022 and then increase at a faster rate through to December 2022 where that month’s contract price implied an average rate of 0.88%. A week ago, the December 2022 contract’s price implied an average rate of 1.27%.
The RBA can change the overnight cash rate target on any day of its choosing and it has done so on occasion in the past. However, past changes have typically been announced on the day of its Board meeting. Changes have been made much more frequently in the months of February, May, August and November.
Economic data or events which had the potential to affect domestic interest rate expectations flowed thick and fast this week and included new forecasts from the RBA.
Monday was a busy day for data releases.
The Melbourne Institute’s October reading of its Inflation Gauge was released at the very start of the week. The index rose 0.2% and the annual rate increased from 2.7% to 3.1%.
ANZ’s October Job Ads survey reported a solid rise. The gain followed three consecutive months of falls and was large enough to offset those declines.
September’s home finance approvals report produced another decline, the fourth in a row. Approvals numbers fell by 4.0% but were still 7% higher than in September 2020.
The RBA left its cash rate target unchanged at 0.10% and its bond purchase programme intact at the latest policy meeting on Tuesday. However, its 0.10% target for the April 2024 bond was abandoned in light of the RBA’s recognition of stronger-than-expected inflation and growth outlooks.
Midweek, home approval figures apparently are still being affected by the HomeBuilder “unwind”. September’s figures declined, just as five of the past six months have done.
Preliminary trade figures for September were released the next day. They indicated Australia’s trade surplus declined from $14.7 billion after revisions in August to $12.2 billion. Exports decreased by 6.4% to $45.0 billion while imports declined by 1.8% to $32.8 billion.
At the end of the week, the November Statement on Monetary Policy (SoMP) presented in more detail the updated RBA growth and inflation forecasts which had been flagged after the RBA Board meeting on Tuesday.
3 month BBSW is a useful benchmark for cash rates and it finished the week 2bps lower at 0.05%. Currently, the RBA’s target for the overnight lending rate between banks is 0.10% but actual overnight interbank loans are being negotiated at 0.03%, 3bps above the RBA’s exchange settlement account (ESA) rate for ADI deposits with it.
There were two changes made by deposit-taking institutions in our survey of cash account interest rates this week. Arab Bank reduced the rate on its Personal Online Savings Account by 20bps and the Bank of Queensland lowered its rate on its Bonus Interest Saving Account by 19bps.
| Product | Interest Rate p.a. | Special Conditions |
|---|---|---|
| AMP Saver Account | 0.01% | |
| AMP Notice Account | 0.10% | Minimum 31 days notice |
| ANZ Premium | 0.25% | |
| ANZ Progress Saver | 0.25% | Minimum $10 deposit and no withdrawal per month |
| Arab Bank Online Savings | 0.50% | Minimum balance $500,000. |
| Bankwest Smart eSaver | 0.40% | On balances from $500,000 to $5,000,000. No withdrawal per month |
| BOQ Fast Track Saver | 0.05% | Minimum monthly balance of $5000. |
| BoQ Bonus Interest Savings | 0.40% | Maximum 1 withdrawal per month. |
| CBA NetBank Saver | 0.05% | |
| CBA Goal Saver Account | 0.25% | On balances of $250,000 - $999,999. Minimum $200 deposit and no withdrawal per month. |
| Great Southern Bank | 0.35% | No maximum balance |
| Heritage Online Saver | 0.25% | Minimum balance $250,000 |
| ING Savings Accelerator | 0.75% | Minimum balance $150,000 |
| Macquarie CMA | 0.00% | Minimum balance $5000 |
| ME Online Savings | 0.05% | |
| NAB iSaver | 0.05% | |
| NAB Reward Saver | 0.25% | 1 deposit and no withdrawal per month |
| RAMS Saver Account | 0.15% | On balances from $200 - $500,000. Minimum $200 deposit and no withdrawal per month |
| Suncorp Growth Saver | 0.05% | |
| UBank USaver | 0.70% | Limit $200,000. Minimum $200 deposit per month. |
| UBank USaver Ultra | 0.05% | Limit $200,000. Minimum $200 deposit per month. |
| Up Saver Account | 1.05% | Calculated daily, paid monthly once qualfied |
| Volt Bank | 0.90% | Limit $245,000 |
| Westpac eSaver | 0.05% | |
| Westpac Reward Saver | 0.15% | Minimum $50 deposit and no withdrawal per month |
| 86400 Save account | 1.20% | On balances upto $50,000 |